Your 5-Step Action Plan to Avoid Them By Aaron Cargain, Partner, Fisher Phillips The federal government is working on business-friendly changes to rules covering independent contractor arrangements and overtime pay requirements, but California employers may not reap the benefits. Employers in the Golden State are subject to labor and employment rules that are stricter or more protective for employees than federal laws, and navigating compliance can be tricky. This article will walk you through everything you need to know about recent federal wage and hour changes, the unique rules that impact your California operations and your five-step action plan to avoid costly mistakes. QUICK FEDERAL RECAP There are two big rules brewing from the U.S. Department of Labor (DOL) that employers across the country should be tracking: • The DOL is advancing a rule to modernize its approach to determining whether a worker is an independent contractor or employee under federal wage laws. If finalized, the proposal from the Trump administration will make it easier for businesses to engage with independent contractors — including freelancers and gig workers — while providing clearer lines on what aspects of the working relationship can trigger employee status. • Additionally, the agency officially removed a Biden-era overtime rule from its regulations. The rule, which had already been struck down in court, would have raised the earnings threshold to nearly $60K for certain executive, administrative and professional employees to be exempt from overtime pay requirements. The DOL’s recent move affirms the $35K salary threshold implemented by the first Trump administration in 2019. The moves were welcome news for the business community — but may not offer relief for companies subject to California’s rules. Understanding the top five employee classification mistakes California employers make can help you avoid making them yourself. 5 Costly Employee Classification Mistakes California Employers Make 1 FAILING TO QUANTIFY EXEMPT DUTIES Employees generally must be paid 1.5 times their regular rate for hours worked beyond 40 in a workweek, but the Fair Labor Standards Act (FLSA) has several exemptions from overtime pay requirements, including for executive, administrative and professional (EAP) positions. Federal rules outline certain duties individuals must perform to qualify for those exemptions. California also uses the EAP categories, but there are some key differences. For example, while federal and California law each require exempt work to be the employee’s primary duties, federal law doesn’t set a fixed amount of time for those duties. California, on the other hand, generally requires that the employee spend more than 50% of their time on exempt work to qualify for the EAP exemptions. So, a position could be exempt from overtime under federal law but considered overtime-eligible under California law, and still subject to California’s meal-and-rest period requirements. California’s Wage Orders and the authority interpreting them emphasize that California’s duties and salary tests, which are more stringent than the federal tests, must be satisfied. Employer Impact: Employers that fail to account for this “primary duty” nuance could unintentionally misclassify employees as exempt NCDA.COM 23
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